People who have lost money in equities fall prey to many investment myths, and in the bargain, lose out on opportunities to make good their losses
ONCE bitten twice shy investors often fall victims to popular myths about investing rather than learning from their mistakes. In the bargain, they lose out on other opportunities. Here we took a look at some of the myths that are prevalent in the minds of those who have lost money.
I Can Do It Myself
Investors feel that they do not need investment advisors and can make investment decisions on their own using their trusted sources. However, one must remember that markets today are far more complex. It is virtually impossible for any one individual to track all asset classes. Hence choosing a good advisor, helps. An advisor is equipped to look at your changing needs and risk profile, and offer appropriate solutions given the market conditions and basket of products available. They are experts and will help you navigate the journey towards financial freedom with a high degree of certainty.
The NAV Is High
The NAV is the total value of all the securities in its portfolio, less any liabilities, divided by the number of units outstanding. The NAV does not signal an entry or an exit point. Instead, one should look at the portfolio quality of the fund, see whether it is a large cap, mid-cap or small-cap oriented, the fund manager, the past performance and the style of investing. Individuals should look at the return on investment rather as a pure number to the NAV has no meaning.
Bonds Are Risk-Free
Bonds or debt mutual funds carry interest rate risk. In a rising interest rate scenario, the value of your bond falls and you lose money and vice versa. Besides, there is a credit risk with bonds of private companies. Hence investors must factor in that before making an investment in debt.
Invest 100 Minus Your Age In Equity
This works for a lot of people, but this is not sacrosanct. For example, if you are 30 years old and have a loan and are the only working member in your family, and barely manage to meet your monthly expenses, it may be risky for you to put 70% of your assets in equities. Alternatively, if you are an HNI and 60 years old, with your retirement nest built and well taken care of, then you can still afford to invest more than 40% in equities. Hence, it is best that you discuss the same with a financial planner before taking a final decision.
Chase Multi-Baggers
A lot of investors are constantly trying to find the next multi-bagger. First, in an individual capacity it is not easy to spot one. Even if you have a multibagger but it constitutes a small percentage of your portfolio then it does not make significant difference to your returns. In the process of identifying a multi-bagger, investors accumulate as many as 15 small-cap stocks, 14 of which would go down, so it is not really worth the effort.
The Best Time To Invest
Most investors think that they will buy at the bottom and sell at the top, in short they want to time the market. However, during their investment journey sooner or later they realise that timing the market is not possible and in the process they miss out on many opportunities. There is no best time to invest, but there is a best time horizon to invest. If you have the time horizon to live the shocks of the particular asset class, you will make money. Investors should build a portfolio over a period of time, depending on the risk that he can take.
Diversification's The Key
Financial advisors advise diversification of portfolio to increase returns and reduce risk. However, diversification does not mean buying stocks and funds at random. Overall we believe that investors should not have more than 20 instruments be it stocks, mutual funds or fixed deposits in their portfolio as diversification beyond that reduces returns without reducing risk.
SOUND ADVICE
you can manage your investments on your own - Choose a financial planner or advisor
NAV or stock price is high - Do a research on the stock or analyse the mutual fund portfolio before taking an investment decision
Debt instruments are risk-free - Yes, provided it is issued by the government, and you hold the bond till maturity
Invest 100 minus your age in equity - It's a broad thumb rule. Look at your profile before investing
Don't chase multi-baggers - The key is to understand your risk profile and follow the right asset allocation mix
The best time to invest - It's impossible to time the market. Systematic investments are the best bet over a period of time
Diversify as much as you can - Don't buy into any product that comes your way. See if it fits your portfolio and needs and only then opt for it
